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This filing is made pursuant to
Rule 424(b)(1) under the
Securities Act of 1933 in connection
with Registration No. 333-36003
DATED SEPTEMBER 30, 1997
PROSPECTUS
AMERICAN TECHNOLOGY CORPORATION
FOR UP TO 1,629,899 SHARES
COMMON STOCK
The shares of common stock, par value $.00001 (the "Common Stock"), of American
Technology Corporation (the "Company") offered hereby represent shares issuable
from time to time upon the conversion of 350,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") and the exercise of Common Stock
Purchase Warrants to purchase up to 175,000 shares of Common Stock (the
"Warrants", which Preferred Stock and Warrants may be referred to herein
collectively as the "Convertible Securities"). Although the Company will not
receive any of the proceeds from the sale of the shares of Common Stock offered
hereby, the Company has received gross proceeds of $3,500,000 pursuant to the
sale of 350,000 shares of the Preferred Stock at $10.00 per preferred share, an
indeterminate amount of which may be retired upon the conversion of the
Preferred Stock into shares of Common Stock of the Company. The Company may
receive aggregate funds not exceeding $1,312,500.00 upon the exercise of
Warrants at an exercise price of $7.50 per share of Common Stock. See "Selling
Security Holders."
The number of shares of Common Stock issuable upon conversion of each share of
the 350,000 shares of Preferred Stock is determined by dividing $10.00, plus an
amount accruing at $0.60 per annum, by 85% of the average of the closing bid
prices of the Company's Common Stock each day for the five trading days
immediately preceding the date of conversion provided that in no event shall
such amount to be multiplied by 85% be less than $3.00 per share or greater than
$5.75 per share. The number of shares into which the 350,000 shares of Preferred
Stock can be converted at the minimum conversion price of $2.55 is 1,372,549.
The Company may force conversion of the Preferred Stock if the closing bid price
of the Common Stock equals or exceeds $14.00 per share for ten consecutive
trading days and certain other conditions are met. The aforementioned number of
shares would be increased by certain adjustments including the $0.60 per share
of Preferred Stock per annum amount. For purposes of determining the initial
number of shares of Common Stock to be registered on this Registration
Statement, the Company has computed the maximum number of shares issuable upon
conversion of the Preferred Stock by adding $0.60 per share for one year (the
mandatory conversion date of August 25, 1998, subject to certain conditions) to
the $10.00 per share purchase price and dividing by the minimum conversion price
of $2.55 per share and multiplying by the number of shares of Preferred Stock
held by each Selling Security Holder, for a total of 1,454,899 shares. The
actual number of shares issuable on conversion may be less. This Registration
Statement and Prospectus also relates to such presently indeterminate number of
additional shares of Common Stock as may be issuable upon conversion of the
Preferred Stock, based upon fluctuations in the conversion price of the
Preferred Stock in accordance with Rule 416 under the Securities Act of 1933, as
amended (the "Securities Act"). The Preferred Stock, the Warrants and the shares
of Common Stock issuable upon conversion or exercise thereof have been and will
be issued in transactions exempt from the registration requirements of the
Securities Act. See "Selling Security Holders" and "Plan of Distribution".
The shares of Common Stock registered for resale hereby have been registered
pursuant to the Company's obligations contained in written agreements with the
Selling Security Holders. The Selling Security Holders may elect to sell all, a
portion or none of the Common Stock offered by them hereunder which is only
obtainable through the conversion of all or portion of the Preferred Shares or
exercise of all or a portion of the Warrants.
The shares of Common Stock offered hereby may be sold from time to time by
Selling Security Holders referred to herein under the caption "Selling Security
Holders" or by pledgees, donees, transferees or other successors in interest
that receive such shares as a gift, partnership distribution or other non-sale
related transfer. Such sales may be made through underwriters, dealers, agents,
or directly to one or more purchasers in fixed price offerings, in negotiated
transactions, at market prices prevailing at the time of sale or at prices
related to such market prices or at negotiated prices. The Company has agreed to
pay certain expenses of registering the shares of Common Stock offered hereby,
including filing fees, legal,
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accounting and miscellaneous expenses in connection with registration. All
selling and other expenses incurred by the Selling Security Holders will be
borne by them. See "Plan of Distribution."
The shares of Common Stock offered hereby have not been registered under the
blue sky or securities laws of any jurisdiction, and any broker or dealer should
assure itself of the existence of an exemption from registration or effect of
such registration in connection with the offer and sale of such shares.
The Common Stock is traded under the symbol "ATCO" in the over-the-counter
market on the "OTC Electronic Bulletin Board" operated by the National
Association of Securities Dealers, Inc. (the "OTC Bulletin Board"). On September
18, 1997 the closing "bid" price was $5.3125. The price and trading volume of
the Company's Common Stock has been volatile. See "Risk Factors."
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. THE COMPANY HAS A HISTORY OF OPERATING LOSSES AND BASED ON
THE CURRENT LEVEL OF EXPENDITURES AND ANTICIPATED ADDITIONAL EXPENDITURES, THE
COMPANY DOES NOT HAVE SUFFICIENT FUNDS FOR THE NEXT TWELVE MONTHS.
SEE "RISK FACTORS" WHICH BEGINS ON PAGE 6.
Each Selling Security Holder and any broker executing selling orders on behalf
of the Selling Security Holder may be deemed to be an underwriter within the
meaning of the Securities Act. Commissions or other compensation received by any
such broker may be deemed to be underwriting compensation under the Securities
Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 30, 1997.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
SECURITY HOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO
MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-3 under
the Securities Act with respect to the Common Stock offered by this Prospectus.
Certain portions of the Registration Statement have not been included in this
Prospectus. For further information, reference is made to the Registration
Statement and the exhibits thereto. Statements in this Prospectus as to the
contents of exhibits are not necessarily complete, and each statement is
qualified in all respects by reference to the copies of documents filed or
incorporated by reference as exhibits to the Registration Statement or otherwise
filed with the Commission. See also "Incorporation of Certain Documents by
Reference."
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration Statement (with exhibits), as
well as such reports, proxy statements and other information, can be inspected
and copied at the public reference facilities maintained by the Commission at
its principal offices at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549, and its regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60601 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549. The Commission maintains a web site (http://www.sec.gov)
that contains reports, proxy, and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been previously filed by the Company (file no.
0-24248) with the Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996, filed on December 13, 1996.
(2) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended December 31, 1996, filed on February 6, 1997.
(3) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1997, filed on May 13, 1997.
(4) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997, filed on August 12, 1997.
(5) The Company's Proxy Statement in connection with the Annual Meeting
of Stockholders held March 25, 1997, filed on February 20, 1997.
(6) Current Report on Form 8-K, filed on April 1, 1997.
(7) Current Report on Form 8-K, filed on August 29, 1997.
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(8) Current Report on Form 8-K/A, Amendment No. 1, filed on September
18, 1997.
(9) The description of the Company's Common Stock contained in
registration statement on Form 10-SB, Item 11, of the Company, SEC file
No. 0-24248, and as amended by the Company's Amended Certificate of
Incorporation.
All documents filed by the Company pursuant to Sections 13(a),13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering covered hereby will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference modifies or replaces such
statement.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the documents incorporated by reference in this Prospectus, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates. In
addition, a copy of the Company's most recent annual report to stockholders will
be promptly furnished, without charge, upon written or oral request. All such
requests should be directed to American Technology Corporation, 13114 Evening
Creek Drive South, San Diego, California 92128, telephone number (619) 679-2114,
attention Mr. Robert Putnam, Vice President.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including all documents incorporated by reference, includes
"forward-looking" statements" within the meaning of Section 27A of the
Securities Act and Section 12E of the Exchange Act. In addition to historical
information, this Prospectus contains forward-looking statements within the
meaning of the private securities litigation reform act of 1995 and the Company
desires to take advantage of the "safe harbor" provisions thereof. Therefore the
Company is including this statement for the express purpose of availing itself
of the protections of such safe harbor with respect to all of such
forward-looking statements. The forward-looking statements in this Prospectus
reflect the company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed herein, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "intends," "future" and
similar expressions identify forward-looking statements. Readers are cautioned
to consider the specific risk factors described herein and in "Risk Factors",
and not to place undue reliance on the forward-looking statements contained
herein, which speak only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that may arise after the date hereof. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this section.
THE COMPANY
BACKGROUND
American Technology Corporation ("Company") was incorporated in the State of
Utah on February 11, 1980 as Chasko, Inc. and on April 7, 1982 its name was
changed to American Technology Corporation. On June 19, 1992 the Company
redomiciled from the State of Utah to the State of Delaware. On July 14, 1992,
the Company completed a 1-for-5 reverse stock split resulting in 7,291,228
common shares, par value $.00001, being issued and outstanding after the reverse
split.
From its inception in 1980 to 1984 the Company was primarily engaged in the
development of a patented 2-speed long play cassette recorder ("X-TEN(R)"). On
September 30, 1984, the Company acquired 100% of the outstanding shares of
Norcom Electronics Corporation which was engaged in development of patented
ear-radio and ear-microphone technology. Both technologies feature small
electronics for placement in or around the entrance to the ear canal to perform
desired functions. From 1984 through 1987, the Company was engaged in various
licensing and development activities with respect to the X-TEN, ear-radio and
ear-microphone technology.
In March, 1988 the Company assigned certain ear-microphone technology to Norris
Communications, Inc. ("NCI") in return for 700,000 shares of NCI common stock
and a 1% royalty on gross sales resulting from the exploitation of certain
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products using the ear-microphone technology ("EarPHONE"). The Company retained
its ear-radio technology. The ear-microphone technology was subsequently sold by
NCI to Jabra Corporation which is commercializing the EarPHONE for cellular
phone, computer, multi-media and other customers. (See "Certain Relationships
and Related Transactions").
From 1988 to early 1992 the Company was inactive due to inadequate financial
resources. In early 1992 the Company was brought into good standing and
restructured to take advantage of new financing opportunities designed to allow
the Company to pursue development of its products and technologies. There were
no changes to management resulting from this reactivation.
Since the 1992 restructuring, Company operations have focused on developing its
various technology assets. The Company's address is 13114 Evening Creek Drive
South, San Diego, California, and its telephone number is 619-679-2114. Its
Internet site is located at WWW.ATCSD.COM.
CURRENT BUSINESS
The Company is engaged in the development, manufacturing and marketing of
consumer electronic products and electronic technologies. The Company's
ear-radio technology was commercialized through the 1993 introduction of the FM
ear-radio and the 1995 introduction of the AM ear-radio. During fiscal 1996 and
to date in fiscal 1997 substantially all of the Company's revenues resulted from
the manufacturing and marketing of its "FM Sounds" FM digital scanning ear-radio
and its "AM Sounds" AM ear-radio. The Company seeks to expand its ear-radio
distribution while developing additional technology assets.
Management anticipates that its HyperSonic Sound (HSS) reproduction technology,
currently in development, will become its primary business focus. HyperSonic
Sound is a new method of sound reproduction -- sound is generated in the air
using ultrasonic frequencies, those above the normal range of hearing. A
patent-pending process creates an ultrasonic wave that interacts in mid-air to
produce wide spectrum audio. Since traditional loudspeaker system elements such
as voice coils, magnets, cones/diaphragms, crossover networks, baffles and
speaker enclosures are eliminated, management believes HSS technology offers
higher quality sound with less distortion while using less power, space, and
weight and at a lower cost. The sound produced by the HSS technology is also
significantly more directional over greater distances than traditional sound
reproduction methods thereby offering a number of application advantages to
users. There can be no assurance the Company can successfully commercialize the
HSS technology (see "Risk Factors").
The Company's HSS technology was invented by Elwood G. Norris, Chief Technology
Officer and a director of the Company, who manages the Company's research and
technical activities and who has invented the Company's products and
technologies. The Company has additional products and technologies in various
stages of development with related pending patents including portable Global
Positioning System ("GPS") technology and a noise reduction system for jet
engines. However, substantially all product and market development efforts are
focused on the HSS technology and there can be no assurance additional
technologies can be proven or commercialized.
The Company acquired the basic concepts for the HSS technology (previously
called the Sonic Generator technology) from Mr. Norris in 1992. During fiscal
1996 and fiscal 1997 to date, the Company has devoted a significant portion of
its research and development activities on HSS technology. In July 1996 the
Company produced a laboratory proof-of-concept demonstration capable of
producing sound in the air using ultrasonics. In October 1996 the Company
produced a second generation portable demonstration system with improved
electronics. The portable system consists of a standard CD player, an
off-the-shelf amplifier modified by the Company, custom electronics and modified
commercial ultrasonic emitters. To date in 1997 research efforts have focused on
development of improved electronics and custom ultrasonic emitters which
management believes will be required to produce a commercially viable system.
The Company continues to improve its proprietary electronics and is working with
multiple producers of ultrasonic devices to develop custom emitters to the
Company's specifications. The Company believes, but there can be no assurance,
that it can have commercially acceptable designs and sources of materials for
use by licensees by the end of calendar 1997.
CERTAIN RECENT DEVELOPMENTS
On May 31, 1997 the inventor of the HSS technology, Elwood G. Norris, was
awarded the 1997 Discover Magazine Award for Technical Innovation in the Sound
category for the Company's HSS technology. Winners in a total of eight
categories were selected from over 4,000 entries. The annual awards are designed
to recognize and promote new technological innovations and the winners are
selected by an expert panel of judges. Winners were also featured in the July
issue of
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Discovery magazine. This award and recognition have provided broad marketing
exposure for the HSS technology to prospective users. HSS technology has also
been featured in over 30 journal articles providing additional marketing
exposure.
The Company's marketing of the HSS technology continues to evolve as a result of
this awareness, technical developments, changes in patent and protection
strategies and reactions from prospective users of the technology. Rather than
broadly licensing large market segments or industries, the Company is focusing
its efforts on original equipment manufacturers ("OEMs") desiring to implement
the HSS technology in specific products. The Company's strategy is to establish
business relationships with leading participants in various segments of the
electronics and sound reproduction markets. The Company believes this strategy
will enable it to take advantage of the superior financial resources,
technological capabilities, proprietary positions and market presence of these
companies in establishing and maintaining HSS technology in sound reproduction.
In accordance with the above strategy, the Company has received non-binding
expressions of interest from more than twenty companies for a broad range of
product applications. The Company's initial strategy is to focus its efforts on
the computer (personal and portable), communication, and home audio and video
markets. The Company recently demonstrated the application of HSS technology in
a personal computer in connection with a prospective major customer to
demonstrate the advantages of directed sound, small size and high sound quality.
The Company intends to establish closer relationships with selected companies
through specific product collaborations, but there can be no assurance that the
HSS technology can be developed to commercialization for such uses or that the
Company can successfully collaborate to develop commercial products to exploit
the HSS technology. The Company anticipates that product license or component
supply relationships (incorporating licensing) will develop as individual
products are jointly designed and developed with product partners in the future.
The Company continues to devote significant resources on preparing and filing
patent applications related to various aspects of the HSS technology. A total of
eleven HSS technology patents have been filed and others are in various stages
of preparation.
On March 25, 1997 the Company sold $1,000,000 of convertible notes and on August
25, 1997 the Company sold $3,500,000 of Preferred Stock (the subject of this
Registration Statement) in private placement transactions, such fundings being
employed to further the development of the HSS technology and provide working
capital.
On September 1, 1997 the Company appointed Dale Williams as Chairman, President
and Chief Executive Officer. In May, 1997 Mr. Williams was engaged as a
strategic planning and business development consultant for the HSS technology.
Since March 1995, Mr. Williams age 58, through his wholly-owned Spectrum
Technology Inc., has been advising technology companies on business acquisition
and market development strategies. From January 1990 to March 1995 he was
founder and Chief Executive Officer of Beacon Light Products Inc., a private
company manufacturing advanced electronic control products. He has held
executive positions with technology companies including Intel, Monolithic
Memories Inc. (Advanced Micro Devices) and Rockwell International. Mr. Williams
has an Electronics Engineering (E.E.) from California State University and MBA
from the University of Southern California. In connection with Mr. William's
appointment, Mr. Norris was appointed Chief Technology Officer and Mr. Robert
Putnam, formerly President and Chief Executive Officer, was appointed as Vice
President and Treasurer and resigned as a director.
RISK FACTORS
The Common Stock offered hereby is speculative and involves a high degree of
risk and should be considered only by persons who can afford the loss of their
entire investment. In addition to the other information included elsewhere in
this Prospectus, prospective investors should give careful consideration to the
following factors before purchasing any shares of the Common Stock offered
hereby. This Prospectus includes forward-looking statements which include risks
and uncertainties. The Company's actual results could differ materially from
those anticipated as a result of a variety of factors, including those set forth
in the following risk factors and elsewhere in this Prospectus.
HISTORY OF LOSSES; ABSENCE OF PROFITABILITY; AND EXPECTATION OF FUTURE LOSSES
The Company has an accumulated deficit of $3,371,500 at June 30, 1997 with
increasing net losses of $1,345,563 for the nine months ended June 30, 1997,
$560,448 for fiscal 1996 and $368,201 for fiscal 1995. The Company expects to
incur additional operating losses in future quarters until and if it is able to
generate operating revenues and margins sufficient to
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support expenditures. There is no assurance that the Company will be able to
achieve or sustain significant periods of profitability in the future.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company intends to meet its working capital needs from a portion of the
proceeds from the two private placements and option exercises completed in the
current fiscal year and from funds generated from operations. Although
management believes the Company will have sufficient funds to meet its working
capital needs for at least the next twelve months, the Company may be required
to seek additional financing sooner than currently anticipated or could be
required to curtail its activities. There can be no assurance that any
additional financing will be available to the Company on terms acceptable to the
Company, or at all.
FUTURE DEPENDENT ON MARKET ACCEPTANCE OF THE COMPANY'S HSS TECHNOLOGY
The future of the Company is largely dependent upon the success of the Company's
HSS technology or the development of new technologies. There can be no assurance
the Company can introduce any of its technologies or that if introduced they
will achieve market acceptance sufficient to sustain the Company or achieve
profitable operations. Because the HSS technology currently represents the
Company's primary technology focus, if the HSS technology is not successful, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
HSS TECHNOLOGY IN DEVELOPMENT; NO ASSURANCE OF COMPLETION; MAY BE SUBJECT TO
DELAYS The Company's HSS technology is in development and has not been developed
to the point of commercialization. There can be no assurance that a commercially
viable system can be completed due to the inherent risks of new technology
development, limitations on financing, competition, obsolescence, loss of key
technical personnel and other factors. The Company has not generated any
revenues from its HSS technology to date, and has no agreements or arrangements
providing any assurance of revenues in the future. The Company's various
development projects are high risk in nature, where unanticipated technical
obstacles can arise at any time and result in lengthy and costly delays or
result in determination that further development is unfeasible. There can be no
assurance of timely completion of commercially viable HSS technology or that if
available that it will perform on a cost-effective basis, or if introduced, that
it will achieve market acceptance.
HSS TECHNOLOGY WILL FACE SIGNIFICANT COMPETITION AND POSSIBLE OBSOLESCENCE
Technological competition from other and longer established electronic and
loudspeaker manufacturers is significant and expected to increase. Most of the
companies with which the Company expects to compete have substantially greater
capital resources, research and development staffs, marketing and distribution
programs and facilities, and many of them have substantially greater experience
in the production and marketing of products. In addition, one or more of the
Company's competitors may succeed in developing technologies and products that
are more effective than any of those being developed by the Company, rendering
the Company's technology and products obsolete or noncompetitive.
NEW TECHNOLOGY FACES MANY BARRIERS AND RISKS
The introduction of new technology, such as the HSS technology, that is targeted
for wide use often faces barriers to commercialization and risks many that
cannot currently be identified. The HSS technology employs ultrasonics and
although ultrasonics are employed in a wide variety of medical and industrial
applications, there can be no assurance that the Company will not face barriers
to introduction due to the use of ultrasonics. The Company's technology uses
relatively small amounts of ultrasonic energy which dissipates rapidly in air.
The Company employs frequencies above those that may be harmful to pets but
within those used by medical devices directly coupled to the body to image
fetuses and the brain. Although the Company believes the frequencies and the
amount of energy employed is harmless, and that the emission of such frequencies
is not presently subject to government regulation, there can be no assurance
that barriers to commercialization will not develop or that the use of such
ultrasonics will not be subject to future regulation or interpretation of
existing regulation.
DEPENDENCE ON THIRD PARTY STRATEGIC ALLIANCES AND BUSINESS RELATIONSHIPS
The Company's strategy is to establish business relationships with leading
participants in various segments of the electronics and sound reproduction
markets. The Company believes this strategy will enable it to take advantage of
the superior financial resources, technological capabilities, proprietary
positions and market presence of these companies in establishing and maintaining
HSS technology in sound reproduction. Although the Company's strategy is to
establish closer relationships with selected companies through specific product
collaborations, there can be no assurance that the HSS
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technology can be developed to commercialization for such uses or that the
Company can successfully collaborate to develop commercial products to exploit
the HSS technology.
The Company's success will depend on its ability to enter into additional
strategic arrangements with new partners on commercially reasonable terms. Any
future relationships may require the Company to share control over its
development, manufacturing and marketing programs or to relinquish rights to
certain versions of its technology.
PRODUCTS IN DEVELOPMENT SUBJECT TO MANY RISKS
The markets for the Company's existing and future products and technologies are
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and enhancements. The successful development
and commercialization of new products and technologies involve many risks,
including the correct and timely identification of new opportunities, the
successful completion of the developmental process, the retention and hiring of
appropriate research and development personnel, establishment of marketing and
distribution and other risks. The life cycle and demand for new products and
technologies is difficult to predict and is subject to the effects of
competition, technological change, price changes and other factors all of which
could have a material adverse effect on the Company's operations, business and
financial condition.
PRODUCT SALES SUBJECT TO SIGNIFICANT VARIABILITY; INSUFFICIENT TO SUPPORT
OPERATIONS The sales of the Company's existing ear-radio products are subject to
significant quarterly and seasonal variability. The Company has been in the past
and may, in the future, be reliant on a limited number of customers, the loss of
which could have an adverse effect on operating results. To date the Company's
sales have consisted almost entirely of ear-radio sales. The Company has been
unable to obtain sufficient volumes and margins to support operations and
management does not believe sufficient ear-radio product sales can be achieved
to achieve profitable operations at the current level of expenditures.
Accordingly, the Company will be reliant on revenues from new products or
technologies to achieve profitable operations. There can be no assurance the
Company can exploit new technologies.
EAR RADIO ASSEMBLY DEPENDENT ON SUBCONTRACTOR; POSSIBLE DISRUPTIONS IN
COMPONENTS With respect to the assembly of the Company's FM ear-radio which
accounts for substantially all of the Company's revenues, the Company is
dependent on a foreign subcontractor. The Company believes that there are a
number of electronic product subcontract assembly companies located in North
America and overseas that are qualified to produce the Company's ear-radio
should the existing supplier be unable or unwilling to do so, however any
disruption of supply could cause additional costs and delays and could have a
material adverse impact on the Company's results of operations. The assembly of
ear-radios is dependent upon the availability of electronic components. The
Company believes there are secondary suppliers of components and subassemblies
such that it is not reliant on one supplier, although delays could result should
the Company be required to change suppliers of longer lead time components or
subassemblies. Any significant delays in obtaining components from existing or
secondary suppliers through supplier changes or from component shortages, which
are common to the electronics industry, could have a material adverse impact on
the Company's results of operations.
PATENTS AND PROPRIETARY RIGHTS SUBJECT TO UNCERTAINTY
The Company has two U.S. patents on ear-radios which it relies on to protect its
technology position in the U.S. The Company has 11 patents pending on its HSS
technology, 2 pending on its GPS technology and one pending on its noise
reduction system for jet engines and the Company is considering additional
patent applications. There can be no assurance that any patents held by the
Company will not be challenged and invalidated, that patents will issue from any
of the Company's pending applications or that any claims allowed from existing
or pending patents will be of sufficient scope or strength or be issued in all
countries where the Company's products can be sold or licensed to provide
meaningful protection or any commercial advantage to the Company. Competitors of
the Company may also be able to design around the Company's patents. The
electronics industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions, which have resulted in significant
and often protracted and expensive litigation. There is currently no pending
intellectual property litigation against the Company. There is no assurance
however, that the Company's technologies or products do not and will not
infringe the patents or proprietary rights of third parties. Problems with
patents or other rights could potentially increase the cost of the Company's
products, or delay or preclude new product development and commercialization by
the Company. If infringement claims against the Company are deemed valid, the
Company may seek licenses which might not be available on acceptable terms or at
all. Litigation could be costly and time-consuming but may be necessary to
protect the Company's future patent and/or technology license positions, or to
defend against infringement claims. A successful challenge to the Company's HSS
technology could have a materially adverse effect on the Company and its
business prospects. There can be no assurance that any application of the
Company's technologies will
8
<PAGE> 9
not infringe upon the proprietary rights of others or that licenses required by
the Company from others will be available on commercially reasonable terms, if
at all.
PERFORMANCE DEPENDENT ON KEY PERSONNEL; LIMITED KEY PERSON LIFE INSURANCE;
SUCCESS DEPENDENT ON ADDITIONAL PERSONNEL The Company's performance is
substantially dependent on the performance of its executive officers and key
technical employees. Given the Company's early stage of development, the Company
is dependent on its ability to retain and motivate high quality personnel,
especially its management and highly skilled technical personnel. Other than a
$2 million policy on Elwood G. Norris, Chief Technology Officer and inventor of
the Company's technologies, the Company does not have "key person" life
insurance policies on any other person. The loss of the services of Mr. Norris
could have a material adverse effect on the business, operating results or
financial condition of the Company. The Company's future success and growth also
depends on its continuing ability to identify, hire, train and retain other
highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. The inability to attract and retain the
necessary technical and managerial personnel could have a material adverse
effect upon the Company's business, operating results or financial condition.
MANAGEMENT OF GROWTH
Depending on the extent of its future growth, if any, the Company may experience
a significant strain on its management, operational and financial resources. The
Company's ability to manage its growth effectively may require it to continue to
implement and improve its operational and financial systems and may require the
addition of new management personnel. The failure of the Company's management
team to effectively manage growth, should it occur, could have a material
adverse impact on the Company's results of operations.
GENERAL CONFLICTS OF INTEREST DUE TO PART-TIME MANAGEMENT
Elwood G. Norris (a significant shareholder, Chief Technology Officer, Director
and inventor of the Company's technologies) and Robert Putnam (Vice President
and Treasurer) devote only part-time services to the Company and have other
employment and business interests to which they devote significant attention and
will continue to do so notwithstanding the fact that management time should be
devoted to the Company's business. Mr. Putnam devotes approximately 25-30 hours
per week and Mr. Norris devotes approximately 15-30 hours per week to the
Company. These management members generally expect to devote time to the Company
only on an as-needed basis over the next twelve months. Mr. Williams is a
full-time employee of the Company.
Certain conflicts of interest now exist and will continue to exist between the
Company and certain of its officers and directors due to the fact that they have
other employment or business interests to which they devote some attention. The
Company has not established policies or procedures for the resolution of current
or potential conflicts of interest between the Company and certain of its
management or management-affiliated entities. There can be no assurance that
members of management will resolve all conflicts of interest in the Company's
favor.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
The Company's Certificate of Incorporation provides for the indemnification of
its officers, directors, employees and agents, under certain circumstances,
against attorney's fees and other expenses incurred by them and judgments
rendered against them in any litigation to which they become a party arising
from their association with or activities on behalf of the Company. The Company
may also bear the expenses of such litigation for any of its officers,
directors, employees or agents, upon their promise to repay such sums if it is
ultimately determined that they are not entitled to indemnification. This
indemnification policy could result in substantial expenditures by the Company
which it may be unable to recoup even if so entitled.
EXCLUSION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation excludes personal liability on the
part of its directors to the Company for monetary damages for breach of
fiduciary duty, except in certain specified circumstances. Accordingly, the
Company will have a much more limited right of action against its directors than
otherwise would be the case. This exclusionary provision does not affect the
liability of any director under federal or applicable state securities laws.
9
<PAGE> 10
NO ACTIVE TRADING MARKET; MARKET VOLATILITY
The Company's shares are traded on the OTC Bulletin Board, a screen-based
trading system operated by the National Association of Securities Dealers, Inc.
Securities traded on the OTC Bulletin Board are, for the most part thinly traded
and are subject to special regulations not imposed on securities listed or
traded on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system or on a national securities exchange. The Company's shares,
like that of the securities of other small, growth-oriented companies, have
experienced in the past and are expected to experience in the future significant
price and volume volatility thereby increasing the risk of ownership to
investors. Historically, the Common Stock has experienced low trading volume.
There can be no assurance that the market price of the Common Stock will remain
at its present level, and any future changes in market price cannot be predicted
as to timing or extent. Past performance of the Common Stock does not guarantee
and should not be construed to imply future performance. Factors such as
announcements by the Company or its competitors concerning technological
innovations, new commercial products or procedures, proposed government
regulations and developments or disputes relating to patents or proprietary
rights may have a significant effect on the market price of the Common Stock.
Changes in the market price of the Common Stock may have no connection with the
Company's actual financial results.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
As of the date of this Prospectus, the Company had outstanding 9,758,779 shares
of Common Stock. As a result of this registration, based on the September 18,
1997 trading price, approximately 771,000 shares of Common Stock will be
eligible for resale in the public market. In May, 1997 the Company registered
shares related to convertible notes of which 181,230 shares have been issued and
approximately 110,000 shares are currently issuable on the balance of $375,000
of notes at current prices, all freely tradable in the public market. If a large
number of the above mentioned shares, issued or issuable, were sold in the
public market, such sales could have an adverse effect on the market price of
the Company's Common Stock.
NO DIVIDENDS WILL BE PAID IN FORESEEABLE FUTURE
The Company does not contemplate paying cash dividends in the foreseeable
future. Future dividends will depend on the Company's earnings, if any, and its
financial requirements.
NO ANTI-TAKEOVER MEASURES
Neither the Company's charter nor its bylaws contain any provision which is
designed or intended to serve as an anti-takeover measure or which is intended
to entrench Management or discourage mergers or other business combinations
involving the Company.
USE OF PROCEEDS
All proceeds from any sale of shares of Common Stock offered by the Selling
Security Holders will be received by the Selling Security Holders and not by the
Company. The proceeds to the Company from the exercise of the 175,000 Warrants
not to exceed $1,312,500, if any, will be used for general corporate purposes.
The Warrants have a net issuance provision providing for cashless exercise
(resulting in no cash proceeds to the Company) should the Common Shares
underlying the Warrants not be registered as required under the terms of the
Common Stock Purchase Warrants.
SELLING SECURITY HOLDERS
An aggregate of up to 1,629,899 shares of Common Stock are being offered for
resale by certain shareholders of the Company plus such presently indeterminate
number of additional shares as may be issuable upon conversion of the Preferred
Stock based upon fluctuations in the conversion price of the Preferred Stock in
accordance with Rule 416 under the Securities Act. Up to 1,454,899 of those
shares are issuable upon conversion by the holders of 350,000 shares of
Preferred Stock. Up to 175,000 shares are issuable upon exercise of Warrants
held by the holders of the Preferred Stock. All shares, to the extent they are
being offered, are being offered for the account of the following shareholders
and their donees, pledgees, transferees or other successors in interest (the
"Selling Security Holders").
The following table sets forth certain information with respect to the Selling
Security Holders for whom the Company is registering the Common Stock for resale
to the public, including: (i) beneficial ownership of Common Stock prior to this
offering (excluding shares issuable upon conversion or exercise of the
Convertible Securities) of this Prospectus, (ii) the maximum number of shares
issuable upon conversion of the Preferred Shares, (iii) the number of shares
issuable upon exercise of Warrants, (iv) the maximum number of shares offered by
each Selling Security Holder (assuming the maximum
10
<PAGE> 11
number of shares were issued upon conversion); and (v) the number of shares and
percentage of class to be owned after the offering (assuming all shares offered
hereby are sold). The number of shares of Common Stock shown in the following
table as being offered by the Selling Security Holders does not include such
presently indeterminate number of shares of Common Stock as may be issuable upon
conversion of the Preferred Stock pursuant to the provisions thereof regarding
determination of the applicable conversion price but which shares are, in
accordance with Rule 416 under the Securities Act, included in the Registration
Statement of which this Prospectus forms a part. The Company has no knowledge of
the intentions of any Selling Security Holder to actually sell any of the shares
listed under the columns "Maximum Shares Issuable Upon Conversion" or "Shares
Issuable Upon Exercise of Warrants." There are no material relationships between
any of the Selling Security Holders and the Company other than as disclosed
below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Maximum
Shares
Issuable
Beneficial Upon
Ownership of Conversion Shares Ownership
Common Stock of Series A Issuable Maximum After Percent
Prior to Convertible Upon Exercise Shares Offering(s) of
Selling Offering Preferred Stock of Warrants Offered Shares Class
Security Holder (1) (2) (3) (4)(5) (6)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pangaea Fund Limited -0- 665,098 80,000 745,098 -0- -0-%
Banque du Credit
Agricole -0- 41,567 5,000 46,567 -0- -0-%
Paul Foti -0- 10,392 1,250 11,642 -0- -0-%
G.P.S. Fund, Ltd. -0- 41,567 5,000 46,567 -0- -0-%
Hull Overseas Ltd. -0- 124,706 15,000 139,706 -0- -0-%
J.M. Hull
Associates, L.P. -0- 124,706 15,000 139,706 -0- -0-%
Legong Investments
N.V -0- 166,275 20,000 186,275 -0- -0-%
Timothy Millhiser 7,274 10,392 1,250 11,642 7,274 *
John Parker -0- 10,392 1,250 11,642 -0- -0-%
Renwick Alpha Fund
L.P. (7) -0- 166,275 20,000 186,275 -0- -0-%
The Renwick Special
Situations Fund L.P.(7) -0- 93,529 11,250 104,779 -0- -0-%
- ------------------------------------------------------------------------------------------------------------
Total 7,274 1,454,899 175,000 1,629,899 7,274 *
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of Common Shares reported above as beneficially owned by each
Selling Security Holder is based solely on a review of a list of the Company's
shareholders prepared by the Company's transfer agent and registrar. None of
these shares are being registered pursuant to this Prospectus. This column does
not include shares beneficially owned which are issuable upon conversion of the
Preferred Stock and exercise of the Warrants.
11
<PAGE> 12
(2) Assumes conversion based on the lowest conversion price possible, or $2.55
per share of Common Stock. The Company has computed the maximum number of shares
issuable pursuant to the Preferred Stock by adding $0.60 per share for one year
(to the mandatory conversion date of August 25, 1998, subject to certain
conditions) to the $10.00 per share purchase price and dividing by the minimum
conversion price of $2.55 per share and multiplying by the number of shares of
Preferred Stock held by each Selling Security Holder or a total of 1,454,899
shares. The actual number of shares issuable on conversion may be less. The
number of shares of Common Stock issuable upon conversion of each share of the
350,000 shares of Preferred Stock is determined by dividing $10.00, plus an
amount accruing at $0.60 per annum, by 85% of the average of the closing bid
prices of the Company's Common Stock each day for the five trading days
immediately preceding the date of conversion provided that in no event shall
such amount to be multiplied by 85% be less than $3.00 per share or greater than
$5.75 per share. The Company may force conversion of the Preferred Stock if the
closing bid price of the Common Stock equals or exceeds $14.00 per share for ten
consecutive trading days and certain other conditions are met. The
aforementioned number of shares would be increased by certain adjustments
including the $0.60 per share of Preferred Stock per annum amount.
(3) Assumes conversion of 100 percent of the Warrants granted to each Preferred
Shareholder based on the exercise price of $7.50 per share.
(4) Assumes issuance of the maximum shares on conversion of the 350,000 shares
of Preferred Stock at the lowest conversion price (see note 2 above) and the
exercise of 100 percent of the Warrants.
(5) The terms of the Preferred Stock and the Warrants provide that the Selling
Security Holders may not convert their Preferred Stock or exercise their
Warrants at any time to acquire a number of shares of Common Stock in excess of
that number which would result in beneficial ownership of more than 4.9% of the
Company's outstanding Common Stock at any time.
(6) An asterisk (*) represents less than 1%.
(7) The Renwick Alpha Fund L.P. and the Renwick Special Situations Fund L.P. are
under common control with Renwick Corporate Finance, Inc., a financial
consultant and advisor to the Company.
PLAN OF DISTRIBUTION
The purpose of this Prospectus is to permit the Selling Security Holders, if
they desire, to offer and sell the shares of Common Stock offered hereby (the
"Resale Shares") at such times and at such places as the Selling Security
Holders choose.
The decision to convert the Preferred Stock into common shares, to exercise the
Warrants, or to sell any shares, is within the sole discretion of the holders
thereof. There can be no assurance that any of the shares of Preferred Stock
will be converted or any of the Warrants exercised, or that any shares will be
sold by the Selling Security Holders.
The Resale Shares offered hereby are being sold by the Selling Security Holders
acting as principals for their own accounts. The distribution of the Resale
Shares is not currently subject to any underwriting agreement though the Selling
Security Holders may, under certain circumstances, elect to sell their shares in
an underwritten offering. The Company expects the Selling Security Holders will
sell the Resale Shares covered by this Prospectus through customary brokerage
channels, either through broker-dealers acting as principals, who may then
resell the shares in the over-the-counter market, or at private sales or
otherwise, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Such sales may be
effected in one or more transactions, including, without limitation, (a) a block
trade in which the broker-dealer so engaged will attempt to sell the Resale
Shares as agent, but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to the Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face or other direct transactions between
the Selling Security Holders and purchasers without a broker-dealer or other
intermediary. In effecting sales, broker-dealers or agents engaged by the
Selling Security Holders may arrange for other broker-dealers or agents to
participate. The Selling Security Holders may effect such transactions by
selling Resale Shares through broker-dealers, and such broker-dealers will
receive compensation in the form of commissions from the Selling Security
Holders and/or the purchasers of the Resale Shares for whom they may act as
12
<PAGE> 13
agent (which compensation may be in excess of customary commissions). The
Selling Security Holders and any broker-dealers that participate with such
Selling Security Holders in the distribution of the Resale Shares may be deemed
to be underwriters and any commissions received by such broker-dealers and any
profit on resale of the Resale Shares sold by them might be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
Resale Shares covered by this Prospectus that qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Selling Security Holders are not restricted as to the price or prices at
which they may sell the Resale Shares. Sales of Resale Shares at less than
market prices may depress the market price of the Company's Common Stock.
Moreover, the Selling Security Holders are not restricted as to the number of
Resale Shares which may be sold at any one time, and it is possible that a
significant number of shares could be sold at the same time.
From time to time, one or more of the Selling Security Holders may pledge,
hypothecate or grant a security interest in some or all of the Resale Shares
owned by them, and the pledgees, secured parties or persons whom such securities
have been hypothecated shall, upon foreclosure in the event of default, be
deemed to be Selling Security Holders hereunder. In addition, the Selling
Security Holders may from time to time sell short the Common Stock of the
Company, and in such instances, this Prospectus may be delivered in connection
with such short sale and the Common Stock offered hereby may be used to cover
such short sale.
Including and without limiting the foregoing, in connection with distributions
of the Resale Shares, a Selling Security Holder may enter into hedging
transactions with broker-dealers and the broker-dealers may engage in short
sales of the Common Stock in the course of hedging the positions they assume
with such Selling Security Holder. A Selling Security Holder may also enter into
option or other transactions with broker-dealers that involve the delivery of
the Resale Shares to the broker-dealers, who may then resell or otherwise
transfer such Resale Shares. A Selling Security Holder may also loan or pledge
the Resale Shares to a broker-dealer and the broker-dealer may sell the Resale
Shares so loaned or upon default may sell or otherwise transfer the pledged
Resale Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Resale Shares may not bid for or purchase
shares of Common Stock during a period which commences one business day (5
business days, if the Company's public float is less than $25 million or its
average daily trading volume is less than $100,000) prior to such person's
participation in the distribution, subject to exceptions for certain passive
market making activities. In addition and without limiting the foregoing, each
Selling Security Holder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M which provisions may limit the timing of purchase and sales of
shares of the Company's Common Stock by such Selling Security Holder.
The Company will not receive any proceeds from any sales of the Resale Shares,
but will receive the proceeds from exercises of the Warrants held by the Selling
Security Holders, which proceeds, if any, will be used for general corporate
purposes.
In connection with the registration by the Company, the Company shall use its
best efforts to prepare and file with the Commission such amendments and
supplements to this registration statement and the included Prospectus as may be
necessary to keep this registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of the shares
covered by the registration statement for the period required to effect the
distribution of such shares.
The Company is paying certain expenses (other than commissions and discounts of
underwriters, dealers or agents) incident to the offer and sale of the shares to
the public, which are estimated to be approximately $8,000. If the Company is
required to update this Prospectus during such period, it may incur additional
expenses in excess of the amount estimated above.
The Company has agreed to indemnify the Selling Security Holders in certain
circumstances, against certain liabilities, including liabilities arising under
the Securities Act.
In order to comply with certain states' securities laws, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states the Shares may not be sold unless they
have been registered or qualify for sale in such state or an exemption from
registration or qualification is available and is complied with.
13
<PAGE> 14
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.00001
par value per share. As of the date of this Prospectus there were 9,758,779
shares outstanding. The holders of Common Stock are entitled to one vote for
each share held. The affirmative vote of a majority of votes cast at a meeting
which commences with a lawful quorum is sufficient for approval of most matters
upon which shareholders may or must vote, including the questions presented for
approval or ratification at the Annual Meeting. However, removal of a director
from office or repeal of the certificate of incorporation in its entirety
require the affirmative vote of a majority of the total voting power for
approval, and certain other matters (such as shareholder amendment of the
bylaws, and amendment, repeal or adoption of any provision inconsistent with
provisions in the certificate of incorporation regarding indemnification of
directors, officers and others, exclusion of director liability, and the
Company's election not to be governed by statutory provisions concerning
business combinations with interested shareholders) require the affirmative vote
of two-thirds of the total voting power for approval. Common Shares do not carry
cumulative voting rights, and holders of more than 50% of the Common Stock have
the power to elect all directors and, as a practical matter, to control the
Company. Holders of Common Stock are not entitled to preemptive rights, and the
Common Stock is not subject to redemption.
The Company is authorized to issue 5,000,000 shares of preferred stock, $.00001
par value, without any action by the stockholders. The board of directors has
the authority to divide any and all shares of preferred stock into series and to
fix and determine the relative rights and preferences of the preferred stock,
such as the designation of series and the number of shares constituting such
series, dividend rights, redemption and sinking fund provisions, liquidation and
dissolution preferences, conversion or exchange rights and voting rights, if
any. With respect to voting rights, if the preferred stock were permitted to
vote in the election of directors or on other matters, each such share would be
entitled to one vote, and such shares may vote with the shares of Common Stock
or may vote as a separate class. Issuance of preferred stock by the board of
directors could result in such shares having dividend and/or liquidation
preferences senior to the rights of the holders of Common Stock and could dilute
the voting rights of the holders of Common Stock.
The Company has designated 350,000 shares of its preferred stock as Series A
Convertible Preferred Stock ("Preferred Stock") all of which have been issued
and are currently outstanding. The Preferred Stock is non-voting except in
certain matters affecting the Preferred Stockholders. The holders of Preferred
Stock shall be entitled to dividends, when, as, and if declared by the Board of
Directors. The Preferred Stock is convertible as described in note (2) under the
caption "SELLING SECURITY HOLDERS" above. As of September 18, 1997 the shares of
Preferred Stock were convertible into approximately 771,000 shares of Common
Stock. The Preferred Stock has a liquidation preference of $10.00 per preferred
share plus $0.60 per share per annum from issuance and certain other
adjustments. There is no further participation after the liquidation preference
is paid. There are no mandatory or optional redemption rights. In a merger or
consolidation, the Preferred Stock shall retain the same economic benefits as
the Preferred Stock just prior to such transaction. As long as the Company is in
compliance in all material respects with its obligations to the Preferred
Stockholders and the underlying common shares are registered, all the Preferred
Stock not already converted shall be converted to Common Stock in accordance
with the conversion terms on August 25, 1998.
The Company has not paid any cash dividends to date, and no cash dividends will
be declared or paid on the Common Shares in the foreseeable future. Payment of
dividends is solely at the discretion of the Company's board of directors.
Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake
City, Utah 84117, acts as transfer agent and registrar for the Common Stock of
the Company. Their telephone number is (801) 272-9294.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's certificate of incorporation and bylaws provide broadly for the
indemnification of the directors and officers of the Company for certain
liabilities and costs incurred by them in connection with the performance of
their duties. This indemnification may include indemnification for liabilities
arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
14
<PAGE> 15
LEGAL OPINION
The validity of the Resale Shares offered hereby will be passed on for the
Company by Brasher & Company, Attorneys at Law, 90 Madison Street, Suite 707,
Denver, Colorado 80206.
EXPERTS
The financial statements incorporated by reference in this Prospectus have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their report incorporated herein by
reference, and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
15
<PAGE> 16
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in, or incorporated by reference in,
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof, or that there has been no change in the affairs
of the Company since such date.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information......................3
Incorporation of Certain Documents
by Reference.............................3
Disclosure Regarding Forward-Looking
Statements...............................4
The Company................................4
Risk Factors...............................6
Use of Proceeds...........................10
Selling Security Holders..................10
Plan of Distribution......................12
Description of Securities.................14
Indemnification for Securities
Act Liabilities.........................14
Legal Opinion.............................15
Experts...................................15
</TABLE>
================================================================================
For Up to
1,629,899 Shares
of
Common Stock
offered by
Selling Security Holders
AMERICAN TECHNOLOGY CORPORATION
PROSPECTUS
September 30, 1997
================================================================================
